Michael Jackson, projected into the New Millennium, was no longer the man who shared the podium with the then President of the United States, Ronald Reagan. Aside from the new artistic maturity and quality of content production, he was “poorer” (poor in the broad sense, considering his privileged status) ten years later.
The New Economic, the dot.com, the iPod, the cell phones, and the Palm Pilot were the 1990s American illusion led by private-sector spending and independent-sector employment. In the attempt to exploit the services arising from investment and speculation, Michael Jackson’s revenue streams became financialized from 1995 onwards. It was a fashionable exercise for many other wealthy Americans. It was a way to stay relevant through the transition from the American Economic of Industrialization to the financial Bubble Economic that around 2000 lead the world into the Great Recession.
Finance is often confused with boring accounting entries; instead, studying the market and monetary flows can be creative. And in mid ’90, finance got creative. Maybe too much… In the New Economic wake, financial institutions began marketing mortgage-backed securities and sophisticated derivative products at unprecedented levels. In just a few years, they doubled the amount of money and debt in the economy. Lending large sums, especially into the property market, pushed up the price of houses along with the level of personal debts.
One form of financial creativity apparently suitable to Michael Jackson came straight from Wall Street: the David Bowie Bonds is the best example of securitization of that time’s intellectual property. Michael Jackson did not jump on that wagon; even if it was reported, he had thought about it many times. Unfortunately, he was already entangled in something more conservative and maybe not planned at best for his personal and corporate needs.
In November 1995, after the merger of ATV catalogs with Sony Publishing catalogs, Sony Venture Capital Corporation – an investment arm of Sony Corporation – issued to Bank of America a bank guarantee in favor of Michael Jackson to facilitate corporate loans and serve fresh working capital. The guarantee amount was about 148 million dollars. To reach 50% membership in the newborn Sony/ATV, there was a discrepancy of 115 million in favor of Mr. Jackson’s that Sony had to recognize to reach the desired parity. That shows how valuable Michael Jackson’s 4000 songs were, compared to Sony Publishing. Mr. Branca confirmed so in the deposition of February 2017; he summed up Sony/ATV’s general rules and provisions during the trial with IRS.
Exhibit B of the Sony/ATV Operating agreement gives us a better understanding of the joint-venture MJ got into with his record label. It describes the total ownership percentage by catalogs and countries. Sony Music Entertainment operated the company to 10% higher than any other publishing company, and 50% of these hefty expenses were for Michael Jackson’s account. Shareholders could not buy each other for ten years, which means December 2005.
Sony made substantial cash injections inside the company (Sony/ATV), not personally to Michael Jackson or his companies. And by the minute the company became operative, Sony Music Entertainment (SME) started charging the company (Sony ATV) with administrative expenses and other extraordinary cotillons. Sony itself expanded its credit lines borrowing heavily from banks – since Kyoto trees have no money under the petals.
The major exercise was purchasing new catalogs for the company project expansion, debiting massive operating costs to the company, generate huge company liabilities, which resulted in a lower market value of the entire catalog and an excellent move for tax benefits. Michael Jackson, being a partner at 50%, had to handle half of all of it. The term merge means combining or joining together, not to sell, and that’s what happened between ATV catalogs & Sony publishing.
There were rumors that later in 1997, MJ yielded another 2% of his foreign catalogs to Sony, and therefore, the Joint-Venture situation would be reversed. There are NO documents either amendments in the “operating agreement” that confirm the transaction. All the loans describe a 50% membership by both parties. It should be clear by now that when someone searches pieces of information on Michael Jackson, we mostly find hacked and manipulated news. In synthesis, bull shit spread around by those who had interests to put down MJ’s reputation. An evil quirk that Sony must’ve developed within the company’s compliances.
Michael Jackson’s financial pressure, as Mr. Branca called it, were lawsuits against him piled up in between ’92 and ’94.
- L.A. Gear filed a 10 million suit against Michael Jackson and his companies, accusing him of fraud and breach of contract in a deal for a failed line of sneakers. MJ countersued them 44 million, and a settlement was in need.
- Promoter Marcel Avram sued him for $20 million for canceling his Dangerous world tour.
- A Chilean promotions company sued for $5 million for canceling two concerts of the Dangerous Tour, one in Chile and another in Peru. Smith-Hemion Productions sued the Jackson family for the musical benefit show Jackson Family Honors.
MJ settled all in 1994. Not to mention the huge amounts disbursed to lawyers and investigators derived from Evan Chandler’s blackmail and extortion. It was enough to burn almost his entire business and career, and the weight of the whole period crashed his soul and his confidence.
The infamous 115 million
Zia Modabber – an attorney that despite being fired in 2002 by Michael Jackson for negligence, still works for MJ Estate, involuntarily confirmed that between 1995 and 1998, not even a shadow of the 115 million got into Michael Jackson coffers, if not for the incomes of the History Tour and the related album. If he had received 115 million, he would have cleared out the pending matters and started with a clean slate. Instead, he borrowed almost immediately the first 90 million from the Sony guarantee. In synthesis, he merged his ATV catalogs against a guaranteed loan. Of course, Sony /ATV value raised sharply in few years – as well the corporate company debts, but it looks as Michael Jackson’s entourage didn’t plan the transaction with an eye toward his corporate needs and standard of life.
However, looking at Bank of America documents’ amounts and dates, these loans likely corresponded to a financial project built around a table. All participants were interested in exploiting the publishing catalogs in the same fashion as commodities and derivatives. Many people think it was a long-range of “operations” finalized to strip away Mr. Jackson’s assets. I tend to believe it was something in the middle since Mr. Jackson was a smart and seasoned businessman. Sometimes a business starts with the best intentions, then time and other issues change prospects and priorities. Anyway, these loans were not opened to cover the holes of a pathological big spender, as media, books, and biographers keep claiming.
The Loan Guaranteed BY 50% of Sony/ATV.
Between 1995 and 1998, four restated and consolidated loan amendments were done, and the amount increased. The structure of Michael Jackson’s business undergone various modifications, and some new trusts were created. The loan of 140 million consolidated in 1998 bore a Prime Rate of interest at 6.16% per annum. The loan term had a due date of December 2005.
Note: a long-term loan provides working capital to a business and can be used to purchase assets, creating additional business income. A company takes on long-term debt to obtain immediate capital. A long-term loan provides higher loan amounts, a lower interest rate, involves collateral submission, repayment in installments, and tax benefits.
Before you think Michael Jackson touched the entire amount, a bitter interlude needs to be open, not about the bank interest rate, but the commissions Michael Jackson vultures team used to take. This time was Mr. Branca and Myung Ho Lee, being both the trustees of an MJ Trust Fund.
The information related to Mr. Branca’s percentage and contractual agreement is published and sure. All the rest remain a rumor. The documents tell that Mr. Branca, as per agency agreement with Michael Jackson, among other things, used to pocket 5% of the principal amount of the loan. Besides it, he was entitled to take directly from Sony/ATV as follows:
- 5% of all MJ “guaranteed advance.”
- 5% of all MJ “excess of cash flow.”
- 5% of the “Put Price” amount if the clause would ever be exercised.
However, to facilitate the 1998 loan documentation, Mr. Branca generously waived the direct payments from Sony until September 2005 to reclaim the whole package – principal capital and accrued interests – at the expiring date by issuing a UCC lien for 50 million dollars on Michael Jackson publishing assets. Business is business: especially in the United States, no doubt on this, but here there is a deep consideration to make: these two were friends once.
Why Mr. Branca needed to reiterate his very existence in Michael Jackson’s life at the very time? It was not about money. Mr. Branca accepted 13.5 million – not the original amount requested – without making additional trouble. So what it was: revenge? Power affirmation? (you fired me, but I exist). Or was he part of the already in motion mechanism to open the bankruptcy procedure and compel MJ to sell off to Sony? Contract enforcement was a means. The motivations might be others. Who thinks Mr. Branca made this action for greed is a naïve, narrow mind. These people do not need the money and do not sue for money, even if cash seems apparently the motivation. Power, revenge, and favoritisms are much more likely.
- In February 1999, there was another change in the Michael Jackson Trust structures. The company MJ LLC merged into the newly constituted MJ-ATV Publishing Trust.
- In December 2000, an additional amount was added to this loan in the principal amount of 45 million. The loan bore a Prime Rate of interest at 7.14% per annum.
- On September 30, 2002, the third loan of the principal amount of 11’650 million. The loan bore a prime rate of interest at one month LIBOR + 2.00% per annum. There was the second amendment reinstated and consolidated loans and agreements for a whole 200 million.
- The fourth loan by September 2005 was already planned in the loan agreement. (but events changed sharply, and MJ credit facilities were already in Fortress’s hands).
Why going from a fixed rate to a fluctuating one? Because in 2002, the LIBOR rate was lower than the US prime rate, and although floating, there were good chances of speculation. With a hedging contract, the risks of an increase in rates should limit the damage.
In short: Libor + spread rate, the hedge contract costs, the amendments cost, and bank services: everything for MJ accounts. Absolutely normal, just financial practices. Banks always cover themselves. But Michael Jackson’s Bank of America loan was really overcollateralized. Here the details:
- MJ-ATV Trust pledged to Bank Of America all MJ ATV’s rights, titles, and interest in Sony/ATV. That meant all the economic interest in Sony/ATV, all distributions, all deposit accounts, including the interest-bearing cash collateral account. All security accounts and investment accounts, all notes, certificates of deposit, deposits, accounts, checks.
- Account Collateral: all interests, dividends, cash, instruments, and other property from time to time received and receivable.
- All the rights to the Hedge Contract Agreement.
- The right to exercise the “put option” outlined in Section 7. 9 of the Operating Agreement of Sony/ATV.
- Neverland Ranch was also added.
- Until full payment of all obligations under the loan, MJ-ATV Trust could not, without the prior written consent of Bank Of America, sell, lease, assign, trade, dispose or transfer any portion of its assets.
- MJ/ATV Trust had to agree that Sony ATV Operating payments were transferred directly to the Cash Collateral Account. All revenues received by the MJ ATV connected with the Operating Agreement had to be received in trustier the benefit of the Bank, be segregated from other funds, and be forthwith paid over to the Bank in the same loan received.
- MJ ATV had obligations to maintaining the cash collateral and investment accounts. Had to perform and observe any term provision of Sony ATV Operating Agreement to be performed relating to the collateral company. Had to deliver to the bank all the financial statements relating to Sony ATV, inform if he received any “guaranteed advance” or “Excess guaranteed advances,” specifying the amount.
- If an event of default occurred where MJ-ATV failed to pay in full when due principal or interest amount, Bank Of America had the right to resort to any or all of the Collateral and exercise any secured party’s rights. At its discretion, the bank could sell MJ/ATV’s interest in Sony/ATV within commercially reasonable terms.
- If the MJ ATV would have failed to pay the outstanding principal amount and the interests of the loan at the maturity date, the Bank had the right, at any time from and after December 21, 2005, and within to February 21, 2006 (the exercise Period), to exercise the Put Option under Article 8, Section 7.9 of the Sony ATV Operating Agreement, causing MJ ATV Trust to sell to Sony Music Publishing his Membership Interest. The Bank would have received the entire Put Price.
Apart from the old pieces of information, I read countless investigations, articles, and books trying to explain it. – In real -, Sony played long with MJ. The bank had Sony involved to pay the principal loan amount, only if MJ had defaulted. But it is crystal clear that the whole loan focused on the expansion project and the value of Sony/ATV, which is classic financial speculation. The documents tell that MJ never touched the “guaranteed distributions” in 10 years due to the bank agreement. That’s why Mr. Branca talks about “forced savings. “
But money was not there, or the transfers were not sufficient, since too often there was never enough to cover the interests. And this is not an opinion. At least four key testimonies, one the MAN himself, testified that money was missing.
The profits of Sony/ATV’s exploitation would have been a successful outcome for Michael Jackson only if the distributions had been equally allocated among the shareholders. It wasn’t like that at all.
You will read it in the upcoming blogs supported by detailed documents and declarations.
Transcript MJ Estate v/s IRS John Branca/Zia Modabber: teammichaeljackson.com
Unfinished Business-Judith Hamera
Sony/ATV Operating Agreement BOA Security Agreement 98/2002
The Road to America’s Economic Meltdown-Raymond Beresford Hamilton